Evaluation Among Insurance Companies on the Decisiveness of Diversification’s Role in Spreading Investment Risk
3 February 2012 Group 2B
Y. Mante Academic year 2011/2012
Academic and Study Skills Semester 1, period 3
Evaluation among insurance companies on the decisiveness of diversification’s role in spreading investment risk
Olaf Marangone
10272933
At the latest when markets began tumbling, financial dependencies became a global issue and whole countries’ economies ran the risk of falling apart, the curent crisis gave reason for questioning current investment strategies and even whole economic systems. Beside the banking sector which had to suffer a tremendous loss of trust also insurance companies were mainly affected by the crisis.
Considering the credit crisis’ impact on global economy the central research question elaborates on the extent to what diversification of asset investments is a solid risk managing strategy. To determine the character of this strategy a closer view on the relative importance of diversification in the field of risk management has been taken. Besides diversification of asset investments the assessment criteria will be based on two other highly relevant concepts of risk management namely the consideration of non–linear dependencies during extreme events and handling liquidity risk. Because investment models of pension funds follow generally a similar pattern than these of insurance companies, an in-depth view on Denmark’s ATP Pension fund’s investment structure has been taken as an example for a successfully implemented investment strategy. The three mentioned sources will be used for section II, which will build up a theoretical framework around the issue being raised in the central research question. In section III, after assessing all three criteria of evaluation they should be used as a measurement for the role of diversification in the field of risk management. On the extent diversification in asset investments plays a role in the context of other risk managing strategies an evaluation will be made on in Section
Y. Mante Academic year 2011/2012
Academic and Study Skills Semester 1, period 3
Evaluation among insurance companies on the decisiveness of diversification’s role in spreading investment risk
Olaf Marangone
10272933
At the latest when markets began tumbling, financial dependencies became a global issue and whole countries’ economies ran the risk of falling apart, the curent crisis gave reason for questioning current investment strategies and even whole economic systems. Beside the banking sector which had to suffer a tremendous loss of trust also insurance companies were mainly affected by the crisis.
Considering the credit crisis’ impact on global economy the central research question elaborates on the extent to what diversification of asset investments is a solid risk managing strategy. To determine the character of this strategy a closer view on the relative importance of diversification in the field of risk management has been taken. Besides diversification of asset investments the assessment criteria will be based on two other highly relevant concepts of risk management namely the consideration of non–linear dependencies during extreme events and handling liquidity risk. Because investment models of pension funds follow generally a similar pattern than these of insurance companies, an in-depth view on Denmark’s ATP Pension fund’s investment structure has been taken as an example for a successfully implemented investment strategy. The three mentioned sources will be used for section II, which will build up a theoretical framework around the issue being raised in the central research question. In section III, after assessing all three criteria of evaluation they should be used as a measurement for the role of diversification in the field of risk management. On the extent diversification in asset investments plays a role in the context of other risk managing strategies an evaluation will be made on in Section
Bibliography: Eling, M., & Schmeiser, H. (2010). Insurance and the Credit Crisis: Impact and Ten Consequences for Risk Management and Supervision. The Geneva Papers, 35, 9-34. Lehmann, A. P., & Hofmann, D. M. (2010). Lessons Learned from the Financial Crisis for Risk Management: Contrasting Developments in Insurance and Banking. The Geneva Papers, 35, 9-34. Pindyck, R. S., & Rubinfeld, D. L. (2009). Microeconomics. New Jersey, NJ: Pearson Prentice Hall. 159-191. Rohde, L., & Dengsøe, C. (2010). Higher Pensions and Less Risk: Innovation at Denmark’s ATP Pension Plan. Rotman International Journal of Pension Management, 3(2), 22-30. Wagner, W. (2010). Diversification at financial institutions and systemic crisis. Journal of Financial Intermediation, 19, 373-386.